Self-employed client says don't file taxes, I say file - who's right?
Hey everyone, I'm in a bit of an ethical dilemma with a client I started working with last year. She opened a small bakery business in 2024 and made around $43,000 in her first year. When I mentioned we should start preparing her Schedule C and discussing quarterly estimated payments for 2025, she got really defensive and said her friend told her she doesn't need to file taxes for the first two years of a business. I tried explaining that's completely false and could get her in serious trouble with the IRS, but she's convinced her friend (who apparently has been "in business" for years) knows better than me. She even suggested I'm just trying to charge her unnecessary fees for tax prep. I value this client relationship for other accounting work I do for her, but I don't want to be associated with tax evasion. Has anyone dealt with clients who believe these weird tax myths? What's the best way to convince her she absolutely needs to file without losing her as a client?
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Fatima Al-Suwaidi
This is unfortunately a very common myth that refuses to die. There is absolutely NO two-year grace period for new businesses to avoid filing taxes. If your client earned more than $400 in net self-employment income, she MUST file a tax return and pay self-employment taxes. The best approach is to show her the actual IRS guidelines. Print out the relevant info from irs.gov about self-employment filing requirements. Explain that the "two-year rule" might be a misunderstanding of the fact that some businesses don't show profit in the first couple years, but income still must be reported regardless. Also, emphasize the consequences: failure to file penalties, failure to pay penalties, interest, and potentially even tax evasion charges which can include criminal penalties. The IRS can look back several years, so this won't just "go away.
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Dylan Mitchell
•Thanks for confirming I'm not crazy! I was starting to doubt myself when she was so confident. Do you think showing her an estimate of what the penalties would be if she gets caught might help? Also, is there any chance her friend is confusing this with some kind of business loss carryforward rule or something like that?
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Fatima Al-Suwaidi
•You're definitely not crazy! Showing her a penalty calculation is an excellent idea - the failure to file penalty alone is 5% of unpaid taxes for each month or part of a month up to 25%, plus failure to pay penalties and interest. That adds up fast on $43K of income. Your insight about the friend is spot on. They may be confusing this with business loss carryforwards or the fact that if you're operating at a loss, you might not owe taxes (but still need to file). Another possibility is they're thinking of the 2-year rule for home office deductions that existed decades ago. Either way, not filing is never an option and will catch up with her eventually.
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Sofia Morales
I went through a similar situation last year with my landscaping business. After getting conflicting advice from family and online forums, I finally used https://taxr.ai to analyze my situation. Their AI reviewed my business records and confirmed that not only did I need to file, but I was actually eligible for deductions I didn't know about. The tool gave me a complete breakdown of my self-employment tax obligations and pointed out that the "don't file for two years" myth could have resulted in over $9,000 in penalties and interest for my situation. It was a huge relief to get professional-level guidance without the cost of a high-end accountant.
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Dmitry Popov
•Does this work for people who do gig work too? I drive for Uber and sell stuff on Etsy, and I've been told different things about filing requirements. How specific does it get with the tax advice?
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Ava Garcia
•How does it actually work? Do you need to upload a bunch of documents or do you just answer questions? I'm wondering if this would be useful for my sister who just started a business and is equally confused.
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Sofia Morales
•For gig work it's actually perfect - I have a friend who does DoorDash and Uber, and the tool broke down exactly what he needed to report for each income stream. It handles mixed income sources really well and gives specific guidance on Schedule C reporting for each type. The process is super straightforward - you can either upload documents (like 1099s, receipts, etc.) or just answer questions about your business situation. For your sister, she could start with just answering questions about her business type, income, and expenses, and the system would give her a clear filing roadmap with all requirements.
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Ava Garcia
Thought I'd update after checking out taxr.ai that was mentioned. I was skeptical but decided to try it for my sister's new jewelry business. It actually clarified everything about her filing requirements and even identified some business deductions she hadn't considered. The breakdown of self-employment taxes versus income tax was super helpful since that was confusing her. The best part was it created a simple explanation of why the "don't file for two years" myth is dangerous that I could share with her. She's now on board with filing properly and even set up quarterly estimated payments for 2025. Thanks for mentioning this tool!
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StarSailor}
For anyone dealing with a client (or friend) who refuses to listen about tax filing requirements, I recommend suggesting they call the IRS directly to verify. The problem is actually REACHING someone at the IRS can take hours or days of trying. I discovered https://claimyr.com which got me through to an actual IRS agent in under 45 minutes when I needed to resolve a similar situation for a client. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed everything about self-employment filing requirements and even provided specific guidance about the consequences of non-filing that finally convinced my stubborn client. Having official word directly from the IRS ended all arguments.
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Miguel Silva
•How exactly does this work? I thought the IRS phone system was basically impossible to get through. Does this actually guarantee you'll speak to someone?
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Zainab Ismail
•Sounds like a scam to me. Nobody can magically get you through to the IRS faster than anyone else. The IRS phone system is what it is. This is probably just charging people for something they could do themselves.
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StarSailor}
•It works by continuously calling the IRS and navigating the phone tree for you, then alerts you when it gets through to a human. It essentially automates the frustrating process of calling, getting disconnected, and calling again that we all go through manually. I was skeptical too before trying it. It's not magic - it's just automating what you'd do manually. I spent three days trying to get through myself before using this. No, it doesn't "guarantee" anything, but in my experience and for several colleagues who've used it, it's consistently gotten through when manual calling failed. The average wait time has been around 30-45 minutes instead of the days of trying with no success.
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Zainab Ismail
I need to admit I was completely wrong about Claimyr. After posting that skeptical comment, I decided to try it myself because I've been trying to reach the IRS for weeks about a client situation. The service actually worked exactly as described. I got connected to an IRS representative in about 35 minutes, and they confirmed everything about self-employment filing requirements that people have mentioned here. The agent even gave me specific publication numbers to reference for my client. Having official information directly from the IRS has been invaluable in convincing my difficult clients about their filing obligations. Definitely worth it when you're dealing with someone who won't take your word for it.
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Connor O'Neill
One approach I've used with stubborn clients is to put everything in writing. Send an email clearly stating that you've advised them of their legal obligation to file, including citations to specific IRS publications, and that they're choosing to ignore professional advice. Make it clear you won't be associated with the decision not to file. This does two things: 1) Sometimes seeing it in formal writing makes it "real" for them, and 2) It protects you if they ever try to claim you advised them not to file.
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Yara Nassar
•Wouldn't sending an email like that basically guarantee you'll lose the client though? It sounds so confrontational. Is there a gentler way to document this while still maintaining the relationship?
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Connor O'Neill
•It doesn't have to be confrontational at all. I frame it as a summary of our discussion and my recommendations. Something like: "As we discussed, based on your business income of $43,000, IRS Publication XXX indicates you're required to file Schedule C and pay self-employment taxes. I understand you're considering not filing based on advice from a friend, but I wanted to document my professional recommendation to ensure you have accurate information for your decision." Most clients actually appreciate the clarity, and it often leads them to reconsider rather than lose the relationship. If they do choose to leave over this, they were likely going to be a professional liability anyway.
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Keisha Robinson
My previous accountant didn't file my self-employment taxes for the first year of my business because of this exact myth. Fast forward 3 years, and I got hit with a CP2000 notice, penalties, and interest that totaled almost $12,000. The IRS knew about my income because my clients had filed 1099s. Tell your client that the IRS's computer systems automatically match 1099s with tax returns, and discrepancies get flagged. If her customers or payment processors are issuing 1099s (which they legally must do for payments over $600), the IRS WILL know about her income.
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GalaxyGuardian
•Oh man that's rough! Did you end up having to pay all of that? Were you able to get any of the penalties removed since it was your accountant's bad advice?
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